August 7, 2007 (LPAC) The rising water from the collapsing real-estate market has now reached the staterooms of those previously thought safe, investors in high-end expensive homes dubbed "McMansions," so-called because of the bland similarity of their design. The crunch in credit markets has now progressed from the lowest, "sub-prime" market, to the Alt-A "liars loans" level, and now has hit "jumbo loans," loans so large that they exceed the $417,000 limit for loan repurchase set by the federal government for mortgage corporations Fannie Mae and Freddy Mac.

Interest rates on these stable loans had historically parallelled the rates on Treasury bills, but that convergence ended last month. The benchmark 10-year treasury bond interest rate is hovering around 5%, while average rates on 30-year jumbo loans have risen to slightly over 7%. As credit tightens, and buyers become fewer, this market will now be exposed to the same "challenges" that have hit the others: falling prices, followed by more restrictive financing, which then feed on each other. As mentioned yesterday, lenders are now putting pressure on the federal agencies for a bailout, in the form of an increase to the monetary limit in loan size. The rationale behind this is that it will have a "calming" effect on the current blizzard in the real estate markets.

This change, which affects 16% of the real estate market nationwide, but probably about 50% of the market in Loudoun county, Virginia, is one reason Lyndon LaRouche has dubbed his home county "ground zero" for the real estate collapse.